Brigade Enterprises: On a disciplined growth path

27 Jun 2023 , 11:31 AM

Recommendation: Buy; Target price: Rs 630

 

In analysts of IIFL Capital Services recent interaction with Brigade Enterprises (BRGD), management reiterated that they will largely fund the growth in Residential business through operational cashflows, and will be averse to taking any meaningful debt for business development. Residential demand remains stable, though approval delays in Bangalore could impact the near-term launch momentum. Outlook on leasing is improving steadily; mgmt hopes to lease out the vacant space over the next 1 year. >75% of debt is LRD, Resi business is almost debt free, and a potential stake sale in Hospitality business could further reduce the consol. debt. Retain BUY.

Residential – All eyes on new launches: 

BRGD has guided to ~15-20% pre-sales growth over FY24, which will largely be driven by the momentum of new launches. BRGD has guided to launch 7.5msf of residential projects (vs >5msf for FY23) across 10 projects in Bangalore and Chennai (TVS Project). Despite some slowdown in approvals in recent months, BRGD remains confident of being able to achieve the launch guidance. With an aim to maintain land bank equal to 5-6 years of pre-sales, BRGD’s business development focus will continue to be on the southern cities of Bangalore, Chennai and Hyderabad.

Annuity – Steady leasing momentum: 

BRGD’s annuity portfolio of 8.7msf is 85% leased, with non SEZ portfolio leased out ~100%. While demand for non-SEZ spaces remains healthy, SEZ demand remains muted due to sunset on tax benefits. Notwithstanding govt action on amendment in SEZ de-notification, mgmt remains hopeful of leasing out the remaining vacancy over next 12 months. BRGD is targeting annuity income of Rs8.5bn over next 1-2 years, and >Rs10bn when ‘Brigade Twin Towers (~1.2msf) are completed and leased.

Achieving disciplined growth; retain BUY: 

Mgmt highlighted that the annual GDV addition is likely to be >1x of pre-sales, largely funded through cashflows. Overall net debt-to-equity will be kept below 1.2x (currently at 0.6x). Monetisation of Hospitality segment is under evaluation. Analysts of IIFL Capital Services build in 15% growth in pre-sales for FY24, and expect the office portfolio achieve >90% occupancy over FY24-25. Retain BUY with TP of Rs630/share.